SR plant thrives, two years after rebirth

BATON ROUGE, La.—The revival of the oldest synthetic rubber plant in North America, if not the world, has moved beyond the difficult startup phase two years after being reborn as East West Copolymer L.L.C.

The company has improved its operations, regained its customer base, fashioned a new union contract and brought on a major investor in its quest to remain one of only two domestic emulsion styrene-butadiene rubber producers in the U.S.

“Our customers wanted us back,” said Greg Nelson, president and CEO of the Baton Rouge operation who spearheaded the company's rebirth. However, getting contract commitments required proof that East West Copolymer is a viable business—a status its clients now accept as reality, he said.

The restart began after Lion Copolymer Holdings L.L.C. stopped production at the ESBR factory in Baton Rouge in December 2013. The facility was one of the original plants opened during World War II in the national effort to create a synthetic rubber industry to counter the loss of Southeast Asian natural rubber plantations to Japanese forces.

Over the years the factory was owned by a laundry list of companies—ranging from Sears, Roebuck and Co., Gates Rubber and Armstrong Rubber to Armtek, DSM and Lion Copolymer and its eventual owner, Goradia Capital L.L.C. Lion pointed to poor market conditions in some of the plant's customer segments and a reluctance to reinvest in the operation as reasons for the shutdown.

Nelson, with several employees and some investors, bought the facility and began putting it back in action as East West Copolymer.

“We spent a bit of that time (2014) and a little bit of 2015 proving ourselves, working to get all our customers back,” Nelson said. The facility restarted with two masterbatch and two clear lines by the end of the first quarter of 2014.

“We were able for the most part to get back what we had before the shutdown,” Nelson said. “For 2016 we have contracts with pretty much all the customers we had before we shut down. We have a contract level a little above what we had in 2015, which is great. We're positioned for success in 2016.”

The firm brought customers in to see how the plant had been improved and automated, “is in good shape and running, the product quality good, in some cases better than it was before.”

Restoring its customer base was a big vote of confidence for the business, Nelson said.

“These are our traditional customers, who we worked with the last 20, 30 years, so they know us. The key thing for them was are we going to be around, be a credible organization. We demonstrated that.”

One of East West Copolymers' goals is to be the low-cost producer of ESBR. The facility traditionally had a production volume of about 80 million pounds, but it today is “right-sized” and not geared for that level, Nelson said.

“As we increase volume, as we are doing this year, we are getting closer to that goal (of being the low-cost producer), because we were able to take out a lot of cost at the plant and run it more efficiently,” he said. The factory has plenty of room to add capacity if needed.

East West Copolymer also secured supply agreements, among them with Exxon, which operates a huge complex next door to the rubber company. The revived SR producer had plans to buy utilities from its petrochemical neighbors to decrease costs, and while it hasn't been able to do that yet, Nelson said the idea still is on the drawing board.

A permanent labor pact with the Operating Engineers Local 216 was another priority.

“They canceled the contract with Lion, and had a temporary contract with us,” Nelson said. For the past year the union and East West Copolymer worked at negotiating a permanent agreement, and recently succeeded in getting a two-year deal.

“That puts us in pretty good stead. The union has done a really good job of working with us,” Nelson said. The facility employs about half of the 310 staff it had when the shutdown occurred.

Next up on the “to-do” list was getting more investors to ensure the company's growth plans succeed. Originally, the investors were “myself, the employees and one other investor, a friend of mine,” the president said. The company was able to attract some other investors, including Main Street Capital Corp., which provided $12 million.

Just after Christmas, East West Copolymer closed a deal with TerraMar Capital L.L.C., a Los Angeles-based private equity company. “They brought in additional capital to help us grow. The firm is in good shape now for several years to come,” he said.

The investors recognized that East West Copolymer, operating as a viable business, is in a good position as one of only two independent SBR businesses in North America, Nelson said.

Lion Copolymer, after closing and selling the Baton Rouge operation, re-entered the ESBR business in late 2014 when it bought Ashland Inc.'s International Specialty Products' SBR business. Ashland had obtained the operation when it acquired ISP, which itself purchased the onetime Ameripol Synpol unit out of bankruptcy in 2003.

Ashland had been shopping the rubber business for awhile, and Nelson admitted East West Copolymer contemplated making a bid for it. “The timing wasn't right,” Nelson said, as his company had its hands full re-establishing itself.

The return of Lion Copolymer as a competitor now has no particular impact on East West Copolymer, Nelson said—same operation, just a different owner.

Among other activities East West Copolymer accomplished since its startup was securing a $16 million revolving credit facility with NewStar Financial Inc. last September, and signing on T.L. Squire & Co. Inc. to handle sales and marketing of SBR to non-tire rubber product makers in North America.

T.L. Squire essentially fills a role formerly held by Harwick Standard Distribution, which moved on from the Baton Rouge operation when Lion shut it down. Nelson said the T.L. Squire arrangement started off a little slow, but “ramped up last year, and we expect a big year from them. They have been great. They have been in the market a long time, have lots of customers and are well-respected,” he said.

While the overall prospects are good, Nelson said East West Copolymer does have to deal with some global issues in the SBR market, specifically the economic slowdown in China.

“The spot market is still a challenge,” he said. “A lot of volume that historically has gone to China is finding its way into North America, and we have to compete with that.”

In contrast, the huge decline in oil prices has resulted in some lower raw material costs, particularly for butadiene, he said.